Please find our most recent market review below. Following the commentary, you will find a table of returns for widely available ETFs that represent the major markets. Below that are five simple portfolio mixes, composed of low-cost Vanguard ETFs. These can be used as a guide against which to compare your portfolio mix. We hope this information is of value to you.
– The AdvicePeriod Team
Monthly Market Review
By Nathan Sonnenberg
AdvicePeriod Chief Investment Officer
Stock and bond prices fell in February as a combination of stubbornly high inflation, rising interest rates, expected monetary tightening by the Federal Reserve and Russia’s invasion of Ukraine weighed on markets.
The S&P 500 dipped into correction territory late in the month before recovering somewhat and ending February down 8% for 2022. At one point in February, the technology heavy NASDAQ-100 Index was off 19% from its previous high. It ended February down 12.7% year to date. The story was much the same in markets around the globe.
Broadly, U.S. stocks (VTI) fell 2.5% in February, while international equities (VEA) were down 2.7%. Emerging-market stocks (VWO) lost 3.7%. U.S. bonds (BND), meanwhile, retreated 1.1%, while municipal bonds (MUB) dipped by .5%.
Inflation has been a significant challenge for corporations. The Producer Price Index, which reflects the rate of inflation experienced by businesses, is up 9.7% over the most recent 12-month period. The Consumer Price Index, meanwhile, rose 7.5% for the 12 months through January; its sharpest increase since 1982.
Interest rate movements in February, meanwhile, reflected the principle that when bonds’ prices fall, their yields rise. The yield on 10-year Treasury bonds, which ended January at 1.78%, hit a high of 2.05% during February before ending the month at 1.84%. The 30-year Treasury, which ended January at 2.1%, touched 2.36% before closing out February at 2.18%.
In an effort to tame inflation, the Federal Reserve has signaled that it will end its bond buying program in March and raise short-term interest rates several times this year.
Employment was a decidedly bright spot amidst February’s gloom: U.S. employers added 678,000 jobs, according to the Labor Department, beating projections for the second month in a row. The unemployment rate fell to 3.8% from January’s 4% level.
A look ahead reveals potential headwinds for the markets. The global sanctions being leveled at Russia are likely to create additional inflationary pressure. Already by March 1, oil prices had surged past $100 per barrel. The Atlanta Federal Reserve projects that gross domestic product, after increasing at an annual rate of 6.9% in the fourth quarter, will be flat in the first quarter. The global economy, meanwhile, remains in expansionary mode but is slowing.
While the market’s recent ups and downs appear likely to continue at least for a while, it’s useful to think of volatility as the price that investors pay for the opportunity to enjoy long-term gains. Periodic pullbacks are inevitable, but over longer periods, markets have always risen. As investors, our job is to ensure that our portfolios are properly diversified, to limit the fees and taxes that can hurt net performance and to remain patient.
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Major Market Index Returns Period Ending 2/1/2022 (Annualized)
Selections include widely available ETFs. Multi-year returns are annualized and net of management fees, but do not include trading and advisory fees. Return source: Morningstar. AP Disclosure
Sample Portfolio Mix Returns (Annualized)
Global portfolio mixes comprise stocks and bonds, as represented by VT (Vanguard Total World Stock Index Fund ETF) and BND (Vanguard Total Bond Market Index Fund ETF). Multi-year returns are annualized. Performance is net of all management fees but does not include trading and advisory fees. Return source: Morningstar. AP Disclosure
What You Pay For: The Percentage of Active Managers That Underperform Their Benchmarks
Trailing 10 Years Numbers As of December 31st, 2020 – S&P Spiva Scorecard
Percentage of US large-cap funds that underperformed their benchmarks
US large-cap benchmark:
Percentage of international funds that underperformed their benchmarks
S&P International 700
Percentage of emerging market funds that underperformed their benchmarks
Emerging Markets benchmark:
The S&P Dow Jones SPIVA Scorecard compares actively managed funds against their respective benchmarks semiannually.